What does a 0.1% population growth mean for Singapore and our economy?

Singapore’s population size has remained stable in the past year, at 5.61 million as of Jun 2017. It grew by a mere 0.1 per cent over the past year, its slowest pace of growth in more than a decade.

The nearly flat population growth last year was mainly due to a decline in the non-resident population, which fell 1.6 per cent to 1.65 million (from 1.67 million), according to the 2017 Population in Brief report. There continued to be a stable increase in citizens due to births and immigration.

The main reason for the drop in the non-resident population was due to declining foreign employment – the first in almost 10 years. This was mainly attributed to a decrease in the number of work permit holders in the Construction and Marine & Offshore Engineering sectors, as both sectors experienced slowdowns in the past year due to cyclical factors.

Citizen marriages and births remained stable. In 2016, there were 23,873 citizen marriages, similar to the 23,805 citizen marriages the previous year. There were 33,167 citizen births in 2016, compared with 33,725 in 2015.

Singapore’s population also continues to age - about 14.4 per cent of citizens were aged 65 and above, compared with 13.7 in 2016.

What do these population trends mean for Singapore?

Shifting to a productivity-led economy

The impact of a stagnating foreign workforce on the economy is two-fold.

Experts say that in the short-term, the effects could be beneficial for locals, especially on the job front.

The shrinking number of foreign workers here will continue to support wages, especially at the lower end of the scale, said United Overseas Bank economist Francis Tan.

“In the short run, the market has not yet reached equilibrium. Companies still need to employ people. If you want to survive, you need to pay more wages,” he said.

“The decline in foreign employment means that local businesses have to outbid each other in hiring, so wages will rise.”

Similarly, job vacancies could continue to rise. In the Manpower Ministry’s second quarterly report of 2017 on the job market, the job vacancy rate, which measures unmet demand for manpower, rose to 2.5 per cent in June, up from 2.3 per cent in March.

In the long run, the slowing growth of the foreign workforce is part of a move to restructure the economy toward more sustainable, productivity-driven growth. As such, the continued availability of PME (professional, managerial and executive) jobs for our growing and more educated local workforce will still largely depend on the overall health of the economy, which in turn depends on the availability of sufficient workers with relevant skills to drive the new growth sectors.

Even though the number of non-resident workers have fallen, they still play a key role in the economy, said National University of Singapore Professor Tan Ern Ser.

Instead of seeing foreign worker inflows as an inherent cause for concern, Prof Tan believes that the focus should be on the end result – Does this benefit Singapore and Singaporeans?

“Whether it is Singaporeans going overseas or foreigners coming onto our shores, we must make sure that our economic pie expands, and that bigger pie benefits Singaporeans,” said Prof Tan.

And while the non-resident workforce continues to play a big role in Singapore’s economy, they also add to the city-state’s rich cultural diversity.

“If these non-Singaporeans accept our core values of multiracialism and meritocracy, while contributing to Singapore, making it a more vibrant city and dynamic economy, I believe their settling in Singapore is something positive. However, I don’t think we want a huge influx, but a more calibrated inflow,” said Prof Tan.

Falling support ratios due to ageing

The longer-term effects of a stagnating total population could be worrying as our citizen population is also rapidly ageing. It’s not only the numbers, but also who makes up the numbers.

The ratio of citizens aged 20 to 64 years, to each citizen aged 65 years and above, has declined from 6.8 in 2007, to 4.4 this year. This ratio is also known as the old age support ratio.

A lower old age support ratio means that there are fewer working adults to support the population of citizens aged 65 years and over.

The old age support ratio could fall further to around 2.4 by 2030.

Furthermore, the number of citizens aged 80 and above has almost doubled over the last decade.

“Social spending by the government will definitely increase as a result of an ageing population – mainly on healthcare and geriatrics,” said Prof Tan.

Rising social spending, coupled with the likely fall in tax revenues with relatively fewer workers in the workforce, could strain the national coffers in the near future. There will also be greater demand for social and healthcare services and manpower.

A measured inflow of foreign workers therefore helps to supplement our local workforce. A significant proportion of them also pay taxes, reducing the potential strains due to a lower old age support ratio.

There are also upshots to an ageing population that we should capitalise on. The rise of the more affluent and educated senior consumer presents new business opportunities, said Kurt Wee, president of the Association of Small & Medium Enterprises.

Firms can capitalise on the shift to eldercare, which may spur new industries in Singapore as well, he added.

“I think there’ll be a greater need for old folks home, homecare services, and all these kinds of roles – the health and wellness industry would boom,” he said.

At the same time, seniors can continue to play a positive role in the economy. Many remain healthy and have much to contribute in terms of their experience and knowledge, he added.

“They have extensive resources, knowledge and expertise on their role. If they’re able to still play an active role, then there’s a lot that they can perform as professional mentors,” he said.

“That can help to develop our younger generation on a more accelerated basis by having more experiential lessons that can be passed down.”

Some population growth helps

In short, it may not be a straightforward answer.

Too high a population growth has its downsides – it could impede our efforts to restructure our economy towards productivity-led growth, lead to higher chances of foreign workers substituting locals in jobs, strain our infrastructure and social compact, to name a few.

Yet, a stagnating or falling population has its risks. Our economy could lose its competitive edge and there might not be enough jobs are created for locals. We would also be unable to mitigate the challenges and potential strains due to a rapidly ageing population.

A sweet spot could be in-between where there is some population growth, both in our citizen and non-resident population. At the same time, we push ahead with strategies to support Singaporeans at all ages: in having relevant skills and remaining active, in building strong families, and in embracing diversity and being adaptable. We also need to keep planning ahead and looking long-term, to ensure there is sufficient infrastructure and a quality living environment, so that Singapore remains the best home for our people to thrive and grow in.

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